Many see foreign direct investment as a key prerequisite for an economic breakthrough in Ukraine. Yet, as this Financial Times article reports, political and security problems in Ukraine prevent FDI from climbing back to its pre-war levels. With the onset of the conflict with Russia, FDI flows to Ukraine experienced an unprecedented decline, falling from $8.5bn in 2012 and $4.5bn in 2013 to just $410m in 2014. Despite a certain rebound, driven by the recapitalisation of foreign-owned banks, FDI has so far failed to return to previous levels.
It is important to note, though, that foreign investment in Ukraine has often served as a veil for local (and sometimes Russian) big business, which uses special purpose entities in Cyprus and other tax havens to secure special legal treatment, conceal the ownership of assets and minimise taxes.
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According to President Donald Trump, Mexico is “beating the US badly on trade” and a big part of the reason is Nafta. In truth, however, the real question is not why Mexico has benefited so much from Nafta, but rather why the economic benefits have been so small.
Of course, as President Trump likes to point out, it is certainly the case that Mexico’s trade surplus with the US has ballooned under Nafta. When the treaty came into force in 1994, Mexico actually ran a small annual trade deficit with the US of $1.3bn. But by 2015, this had shifted to a surplus of $67bn. What’s more, while the US runs a surplus in services and also earns significant sums on its investments in Mexico, these are more than offset by the outflow of remittances from Mexicans working north of the border. All told, Mexico’s current account surplus with the US was around $75bn in 2015. Read more
By Nick Kochan
The 250,000 protesters on the streets of Bucharest yesterday will not welcome it, but Romania’s new government are to be congratulated for reversing what has become a national obsession with corruption.
The announcement that they are planning to decriminalise some forms of official misconduct, pardon some 3,000 people convicted of minor acts of graft –the legal measure covers those who stole less than $50,000 from the state – and release them from jail not only frees up the prisons but sounds a warning to its over-zealous National Anti-Corruption Directorate (DNA). Read more
By Carlos Mera, Rabobank
As the world grapples with major economic and geo-political changes, we have predicted that food prices – which like all commodities are influenced by such forces – will remain low during 2017.
We believe the fundamentals support that view: while the spectre of inflation stalks some economies, stock levels of food commodities are at record levels, applying some downward pressure to prices. Many of these reserves are held by China. Therefore, what action the world’s most populous country takes in 2017 will have profound repercussions for everybody else. Read more
Throughout my career I have been at the frontline in the fight against some of the toughest health emergencies of our times. In the 1970s I was working to quell the outbreak of the then-unknown Ebola virus. In the 1990s I was leading the newly-created UNAIDS to tackle one of the greatest pandemics of modern times – the HIV/AIDS epidemic.
Today we have a similar emergency on our hands, but one that is largely silent and failing to secure the necessary global attention and funding. The prevalence of non-communicable diseases (NCDs) is comparable to the greatest global health challenges we have had to confront in recent history. Read more
By Yigal Chazan, Alaco
Over the past two decades, large swathes of the eastern Democratic Republic of Congo (DRC) have been subjected to conflict between rival militia groups, which together with some Congolese army factions, have benefited financially from the artisanal mining of tin, tantalum, tungsten and gold.
These so-called “conflict minerals” have found their way into international supply chains serving a range of end-users – including companies in the electronics, automotive, aerospace and jewellery sectors – prompting efforts to regulate DRC artisanal mines and strengthen corporate due diligence procedures. Read more
President Donald Trump laudably committed to making the US more secure, to better protecting the country against physical, economic and other threats which could be transmitted to it from Mexico.
In the 23 years I have worked in the defense sector, a fundamental and almost universal lesson is that security depends on cooperation, more than on any physical asset. Without the cooperation of the population, not even the most precise sensors and lethal arms can defeat an insurgency. Without interagency and international cooperation, actions against transnational criminal organisations only displace the threat. Read more
After a three year hiatus, Lebanon has approved two crucial decrees required to relaunch the country’s first offshore energy licensing round. The Lebanese authorities are preparing a road map to resume a stalled plan to allow global oil companies to explore for hydrocarbons in the eastern Mediterranean country. Read more
The Gulf Cooperation Council countries’ currencies have been pegged to the US dollar (Kuwait’s is pegged to a dollar-dominated basket of currencies) for nearly three decades and the dollar peg has served these countries well. It has provided a credible anchor of stability, reduced transactions costs and simplified the conduct of macroeconomic policy. Meanwhile, despite some progress in diversification, GCC countries remain dependent, to varying degrees, on oil and gas and related activities.
With the oil price plunge since mid-2104, conditions changed in fundamental and possibly irreversible ways. As a result, GCC countries have had to call into question the appropriateness of policies that had been in place for decades. The issues are especially pressing for Saudi Arabia, with the largest and most complex of the six economies in the region and, appropriately, with the most ambitious plans to overhaul its economy. Read more
What was 2016’s most threatening disease outbreak?
If you said Ebola or Zika, you’d be wrong. Instead, as measured by the potential to cause sickness and death at a global scale, it was an outbreak of yellow fever that many public health officials feared the most. First reported in Angola last winter, it quickly infected more than 7,000 people and caused hundreds of deaths before it was brought under control. Read more
Economic development efforts in Africa have traditionally been the purview of foreign aid agencies, local and international NGOs and publicly-funded multilateral finance institutions. African governmental spending has also played a central role. Private-sector funded economic development, while existent, has been much less present and visible.
This situation, however, has been steadily changing over the past 15 years, and the growing Africa-focused private equity (PE) community has a unique opportunity to play its part in what is becoming a symbiotic development relationship. African economic growth has created opportunities for PE firms to create value and get returns, and, at the same time, PE is good for African economic development: it helps to create a robust and healthy business sector, which promotes job creation and political stability, and takes pressure off governments to be universal problem-solvers. At its core, African growth equity hires, while leveraged-buyout-style private equity in development markets fires. Read more
Donald Trump won the US election on a promise to ‘make America great again’. Now he is in the Oval Office, he will actually have to make good on those promises. He will need to create new jobs and improve living standards for America’s ‘left-behind’ who turned out en masse to vote him in. Trump appears to believe that the quickest way to achieve this is by revamping and restructuring the US’s global economic relationships, particularly with China.
Inevitably, such an upheaval will cause geopolitical tensions and Britain must be careful not to get sucked into a vortex of trade warfare. However, if we play our cards right, the process could provide a fantastic global opportunity for the UK. Read more
Since Libya slipped into civil war in the summer of 2014, its politics have been characterised by byzantine complexity. The sheer number of local, regional and international actors involved makes a tangled web of animosities and alliances that has confounded casual observers and international negotiators alike. Among the panoply of local power brokers, however, Eastern Libyan strongman Khalifa Haftar has increasingly emerged as impossible to ignore. No national power-sharing solution can survive if it excludes him. Now, Haftar looks poised to support a Russian bid for the leading role in the future of the oil-rich and strategically-located Mediterranean state.
Once a key figure in the Qadhafi regime, the 73-year-old Haftar is currently head of the so-called Libyan National Army (LNA) – which, in reality, is a powerful militia aligned with one of the three governments currently struggling for control of the country. In a clear signal of Russian support, Haftar was invited aboard the Admiral Kuznetsov, the sole remaining aircraft carrier in the Russian fleet, as the vessel entered Libyan territorial waters this month. Treated as a head of state might be, Haftar reviewed the ship before going on to discuss counter-terrorism policy via video-link with Russia’s defence minister, Sergei Shoigu. Read more
The nature of environmental and natural resource security has changed dramatically since the 1990s. Over the last two decades, the global economy, geared towards exploiting natural resources to serve an exponentially growing population of consumers, has far exceeded the carrying capacity of the planet. The depth of the transformation has been so profound that it has pushed Earth into a new geological epoch, the Anthropocene. Indeed, scientists have identified planetary boundaries that it would be unwise to transgress, and we seem to be in the process of crossing many of them right now.
Over the past few years, the world economy has also been quietly undergoing a further, high-speed transformation driven by the fusion of digital, material science and biological innovations of the Fourth Industrial Revolution. The World Economic Forum has highlighted this transformational pathway as the fundamental shift that is driving the global economy today. How it will incorporate the value of ecosystems and the interconnectedness of human and natural processes will determine whether the global economy manages to reconcile itself with the planet’s finite resources or whether we will simply accelerate its impacts. Read more
By Ganeshan Wignaraja and Juzhong Zhuang*
Rising protectionist sentiment in the West and a dramatic decline in global trade since 2011 have led many to speculate that Asia’s era of export-led growth will end soon. This speculation is overdone. While the slowdown in trade does demand responses, Asia is well positioned to be a bulwark against protectionism. In fact, it can lead global trade in the years to come.
But, getting the responses right will require a clear understanding of the causes. Policy makers need to ask first what explains the export slowdown, and what this means for Asian economies. The story starts with the great recession in 2008, which left advanced countries stuck in low growth, low demand environments that have weighed heavily on Asia’s export-dominated economies. Read more
Corporate borrowers in emerging markets are already facing higher debt service and capital repayment costs, due to the combined impact of dollar strength and rising benchmark US 10-year interest rates. In turn, this risks creating a vicious circle for growth. The latest data from the Bank for International Settlements (BIS) suggest the EMs’ dollar-denominated debt doubled to $3.2tn between 2009 and March 2016.
As the IMF has warned: “China urgently needs to tackle its corporate-debt problem before it becomes a major drag on growth.” Read more
In the second half of the last century, world populations sought peace and security as the background for economic growth and overall prosperity. The US was the major underwriter and supplier and became world leader.
In this 21st century, with the globalisation of trade, social habits and new technologies, world populations need infrastructure and connectivity to be able to achieve economic growth and prosperity. China seems to be emerging as the main underwriter and supplier, be it in Asia, with the creation of the Asia Infrastructure Investment Bank; Latin America, with massive investments in power transmission; or in Africa, where it has been the main developer, builder and financier of infrastructure assets, based primarily on bilateral government-to-government arrangements. Read more
By Paola Subacchi, Chatham House
The few weeks between the beginning of 2017 and the Chinese new year may be used by the Chinese monetary authorities to tweak some policies. The exchange rate is an area in desperate need of reform.
Will China finally embrace the market and let the renminbi float?
Despite the ambition to turn it into an international currency – i.e. a currency used to invoice and settle international trade, and to be held as an asset – the renminbi remains a currency with limited international demand. Read more
Last year, a combination of mass migration, the largest refugee crisis since World War II and stagnant living standards proved to be an explosive cocktail for political elites in Europe and the US.
In 2017, middle-income countries are facing even stronger headwinds. They house the majority of the world’s 21m refugees and are struggling with depressed global markets and lower remittances. In this context, donors and governments must rethink how they respond to global displacement. Instead of focusing on providing refugees with short-term handouts, they must expand employment opportunities both for those fleeing their homes and for the communities that host them. Read more
By Joseph Losavio and Michael Drexler , World Economic Forum
Is 2017 the year Argentina finally turns a century of economic torpidity around? Last year’s signs were promising: Argentines swept President Mauricio Macri into office with a mandate to reform the moribund economy, attract foreign investment, and restore Argentina to its place as a Latin American leader and a global player.
But to regain its past riches, more will be needed than a reform promises. Here’s three areas that need action in 2017. It’s remarkable Argentina even needs a renaissance. Exactly 100 years ago, it was already one of the world’s wealthiest economies. Read more